Industrial stocks tend to get overlooked in today’s fast-paced, tech-driven markets. Many view them as boring relics of the past — not sexy or exciting enough to warrant attention. However, I believe that perception is about to change significantly. A handful of industrial Internet of Things (IoT) stocks are poised for massive growth as they bring automation to traditional businesses.
Wall Street often assumes AI and advanced technologies are only useful in white-collar settings. But many industrial companies are proving that wrong — integrating smart machines, predictive analytics and other innovations onto factory floors and worksites. This is leading to improved efficiency, quality control and productivity. As industrial IoT picks up steam over the next few years, certain stocks stand ready to ride the wave higher. Here are three such industrial IoT stocks to look into.
Pegasystems (PEGA)
Pegasystems (NASDAQ:PEGA) is in a very interesting spot right now. This software company caters heavily to the industrial and blue-collar sectors, providing artificial intelligence services and software to power robots and automation. I’m quite bullish on this unique approach. Most AI firms today chase generic language models or machine learning solutions for white-collar settings. However, Pegasystems takes a differentiated strategy targeting robotic process automation (RPA) and smart manufacturing capabilities.
With labor shortages hitting manual labor and industrial roles harder than other areas, the time is ripe for an influx of AI and automation solutions tailored to these blue-collar workflows. Pegasystems enable robots to handle mundane tasks, freeing up the human workforce for higher-value responsibilities. Its focus on customer and digital process automation fits perfectly with this next wave of industrial technology adoption.
Now, PEGA certainly isn’t cheap, trading at 3.6x forward sales. But for a company expected to grow revenue at double digits annually (on average) this decade, I believe the premium is warranted. EPS is also expected to grow around 15% annually, so paying 23 times forward earnings is quite cheap compared to peer firms. Pegasystems clearly has a winning strategy and a wide open runway as more industrial firms realize the power and potential of AI. If it can continue surprising estimates (it beat EPS estimates by 78% and revenue estimates by 14% in Q4 2023!), triple-digit upside in 2024 is feasible.
Fastly (FSLY)
Fastly (NYSE:FSLY) provides vital content delivery, edge computing and web security services to some of the biggest names on the internet. Its global network of points of presence and powerful caching capabilities help companies accelerate and protect their online operations. Fastly gives developers the tools to push computer and data storage resources all the way to the edge, closer than ever to end users.
This edge-based infrastructure will be critical for time-sensitive industrial applications. As factories, warehouses and other industrial facilities incorporate more automation, sensors and interconnected platforms, having lightning-fast data processing and analytics at the edge unlocks smarter machines and smoother operations. Fastly is primed to benefit from these secular tailwinds.
Trading at 3x 2024 sales, I believe Fastly offers good value. Consensus forecasts call for remarkably fast growth, too. Analysts see revenue more than tripling from 2024-2033, with EPS scaling over 35x to $5.70 in a decade. Even if it meets estimated EPS just four years out in 2028, Fastly would sport a P/E ratio at 10x based on current stock prices. The market isn’t pricing in anything close to this level of success.
iRobot (IRBT)
It’s been an extremely rough stretch for iRobot (NASDAQ:IRBT). Shares have cratered 69% year-to-date after Amazon (NASDAQ:AMZN) pulled the plug on its acquisition attempt. Understandably, investors are concerned about iRobot’s standalone prospects now that the buyout bonanza seems dead.
However, I believe much of the damage is already priced in. Despite the ugly headlines, iRobot retains strong technology and intellectual property around home robotics. The company is moving swiftly to right expenses after the failed Amazon deal. It recently announced layoffs that would impact about a third of its employees. It has $238 million in debt against $190 million in cash. With rates coming down and layoffs, the financial picture looks manageable.
Clearly, the road ahead remains challenging for iRobot. But with expectations reset to zero, any glimmer of positive momentum could spark a powerful rebound. This is ultimately a technology company with visionary ambitions. If iRobot can reinvigorate sales growth, a 3x return from current levels seems reasonable within a 24 month timeframe. For risk-tolerant investors, this left-for-dead stock offers an intriguing post-selloff bargain.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.